Clearwater Paper Corporation

Hello and welcome to the Clearwater Paper Corporation's first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's comments, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. I will now turn the conference over to Sloan Bolin, Investor Relations. Please go ahead.

Thank you, Sarah. Good afternoon, and thank you for joining Clearwater Papers first quarter 2023 earnings conference call. Joining me on the call today are Arson Kitsch, President and Chief Executive Officer, and Mike Murphy, Chief Financial Officer. Financial results for the first quarter 2023 were released shortly after today's market close, along with the filing of our 10Q. You will find a presentation of supplemental information, including a slide providing the company's current outlook, posted on the investor relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP information in this afternoon's discussion. The reconciliation of the non-GAAP information to comparable GAAP information is included in the press release and in the supplemental information provided on our website. Please note, slide two of our supplemental information is covering forward-looking statements. Rather than rereading this slide, we are going to incorporate it by reference into our prepared remarks. With that, let me turn the call over to Arsene.

Good afternoon, and thank you for joining us today. Please turn to slide three. We had a solid first quarter in 2023 with better results as compared to the first quarter of 2022. We reported net sales of $525 million and adjusted EBITDA of $66 million. Let me share a few highlights. Prices increased in both paperboard and tissue as compared to the first quarter of 2022. Private branded tissue shares strengthened as consumers sought to offset inflation. Paperboard demand softened as customers managed down their inventories. We resolved the operational issues that we experienced in the fourth quarter of last year. Inflation moderated as compared to the fourth quarter, particularly in pulp, energy, and transportation. And finally, we repurchased $1.7 million of shares during the quarter and have $23 million remaining on our buyback authorization. With that, let's discuss some additional details about both of our businesses. Let's start on slide four with a few comments on our paperboard business. In 2021 and 2022, the industry experienced high operating rates with strong demand. As a result, RECI reported price increases for the US market that totaled $250 per ton in 2022. Based on our previously announced price increases, we expect year over year improvements to carry into 2023. As previously noted, we experienced a softening in paperboard demand late in the fourth quarter. That trend continued in the first quarter of 2023 and into April. We believe that this is due to customers reducing their inventories as well as a slowdown in consumer spending. Based on the most recent AFMPA data, the softening has resulted in lower backlogs and operating rates across the industry. Our backlogs also fell and our inventories increased in the first quarter. As a result, We reduced production in the second quarter to manage our inventory levels. It is our intent to balance supply and demand for the remainder of the year and normalize inventory levels. While we're experiencing a softening in demand, we continue to believe that Paperboard is economically resilient given the end use of our products. Our portfolio skews more heavily towards consumer applications such as food packaging, pharmaceuticals, and cosmetics. In addition, we expect the shift to paper-based products to continue, and we're optimistic that demand for paperboard will improve in the second half of this year. Operationally, our performance improved in the first quarter, with a major maintenance outage and operational issues experienced in the fourth quarter now behind us. Please turn to slide five for additional comments on our tissue business. The underlying performance of the business was strong. We continue to see consumers shift their demand to private branded tissue products to help offset the impact of inflation. Private branded share of the market approached 35% in March based on IRI panel data. We shipped 12.7 million cases in the first quarter, which was 700,000 cases higher than the first quarter of 2022 and slightly lower than our fourth quarter shipments of 13 million cases. As we previously mentioned, cost inflation has outpaced price increases in our tissue business over the past two years, leading to margin compression. Our team has focused on recovering margins through cost reduction initiatives and implementing the previously announced price increases. As a result, we saw higher pricing in the first quarter and expect additional sequential price benefits in the second quarter. With pull prices and other input costs decreasing, we expect to see further margin recovery in the coming quarters. We're encouraged by the trends and expect a strengthening of our tissue business this year. I will now ask Mike to discuss our first quarter results in more detail. Thank you, Arson.